crypto or gold gold and crypto investing

Exploring The Case for Crypto Investments Over Gold

Written By Ivan on Tech

Jun 23, 2020

Wondering whether to invest in gold vs. doing so in Bitcoin has long been a well-known debate. While the former yellow precious metal has a far greater tenure as a highly secure asset investment, the latter came about back in 2009 and has a very volatile trading history. However, the returns that Bitcoin witnessed in just the past ten years have changed the perception of what can actually be thought of as an asset. 

Is Crypto or Gold the Better Investment?

To preface, the writer of this article is the daughter of a typical Indian mother who looks at gold as a precious and practical investment, especially to make her daughter look more beautiful with a bunch of jewelry on her wedding day. This is also nothing new. Predominantly older generations tend to view gold as an extremely safe asset haven class.

While my mom is a gold advocate, I am a die-hard fan of bitcoin. Well, I love my mom and never go against her decision. Knowing that she asked me to invest in a gold scheme a year ago. I did this as a practical case-study of the asset class, and yes, to live up to her expectation, I invested a small amount in a gold scheme in March 2019. I used to invest a small amount every month, and my mom was quite excited to see when it would end as the executive told her that they would provide the best offers during the festive season, over and above bonus and principal amount. 

Gold Investment Gone Awry

It was a 10-month scheme and guess what, it ended recently. When we visited the showroom to see the returns and offers, they literally told us that they did not have any offers. Although it was the time of Ramadan festival, they said to us that they do not generally provide any offer in Ramdan even though it's the biggest festival for Muslims.

If not festival offer, there must be good sort of returns on investment, but to my surprise, the return that they confirmed to us was just 5.33 percent. This seemingly meager return on investment becomes even lower when one takes Bitcoin returns into account. So, what would my returns be by now if I would have invested the same amount in Bitcoin?

Bitcoin Would Have Been Much More Profitable

In contrast to gold, if I would have invested a similar amount in Bitcoin at the same time, the return would have been 31.08 percent (as per the current price of Bitcoin). 

As my funds are still in my gold account, the store manager said that I either need to purchase something using gold in the next two months to avail 5 percent returns, or the amount will be deposited to our bank account directly without a return value of 5 percent.

I am a long-term holder and my small investment in gold has now served as a case study for why I want Indian moms to look for crypto investment than just gold. However, this is not only due to my own experiences with gold versus Bitcoin investments. Let's instead look at the data.

Why Is Gold So Popular?

First and foremost, there are several factors that make gold a secure safe-haven asset class. First and foremost, it is valuable as a material for consumer goods including the likes of jewelry and even electronics. What's more, the asset class is also scarce. Regardless of the current gold demand, its supply still remains disproportionately low. Additionally, gold cannot be manufactured by any actor like how a company tends to issue new shares, or how a traditional federal bank prints fiat currency money. Instead, gold must be manually dug up from the ground and processed.

As such, gold holds almost no correlation with other traditional assets such as currencies, and stock indexes such as the S&P500 index. Moreover, gold was previously tied to the dollar until 1971, when President Nixon cut off the ties between the US currency and gold. Ever since then, those who do not necessarily want to partake in the violent stock market swings to their full extent have taken to investing in gold. This yellow precious metal often helps to soften the blow when there is a serious stock market correction, or a stock market decline of at least ten percent.

Gold Is Seen As Safe

Gold is known to usually perform quite well during times of financial correction because even if it does not necessarily rise, one should remember that an asset that stays static while others decline is still relatively useful as a hedge. Additionally, as more people leave traditional stocks and invest in gold, the price rises accordingly. However, gold is not entirely different from Bitcoin. Specifically, Bitcoin is also mined, much like traditional gold. However, we need to look at what Bitcoin is in order to understand its likeness to "real" gold.

Is Bitcoin The New Gold?

Much like gold, there is a limited available amount of Bitcoin. Additionally, Satoshi Nakamoto, the pseudonymous creator of the Bitcoin whitepaper, made the premier crypto limited the a total supply of 21 million Bitcoin tokens. Furthermore, Bitcoin is also much like gold in that it is not made by a single central bank or by a federal government. Instead, the premier cryptocurrency is managed by something known as "decentralized" technology.

Consequently, as a decentralized cryptocurrency, the available amount of Bitcoin is brought about, or generated, by its collective computing power coming from "miners", which are individuals and various pools of people lending their computer power to verify the transactions hat take place on the Bitcoin network. What's more, these miners are then rewarded for their time, their lent computing power, and their effort mining with compensation paid in Bitcoins. To ensure that the crypto market isn't flooded with an exorbitant amount of crypto, the Bitcoin protocol specifies that these mining rewards are periodically cut in half, or halved, ensuring that the last Bitcoin token will not be issued until about the year 2140.

Gold or Crypto?

However, many are still skeptical that Bitcoin can truly become the go-to global safe asset that gold currently is. Adding to this, gold has traditionally been used in a wide variety of applications, ranging from certain luxury items such as jewelry, going onto specialized applications in everything from dentistry, electronic products, and much more. However, in addition to bringing about a new focus on cryptocurrencies and blockchain technology, the asset class of Bitcoin itself has tremendous "baseline" value as well. 

We know that the baseline value of gold stems from its practical value. However, Bitcoin also offers some practical baseline value. In fact, there are billions of people around the world that lack sufficient access to any banking infrastructure as well as don't have access tto traditional means of finance such as credit. With a cryptocurrency such as Bitcoin, individuals like these can send value anywhere on Earth for close to no transaction fees. As such, Bitcoin's true practical potential as a functional means of banking for those lacking access to conventional banks is perhaps not yet fully known.

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